Recent severe smog incidents in northeast China have cast the country’s environmental problems back into the spotlight. In Harbin, air pollution was so thick—surpassing World Health Organization standards by more than 40 times—that the municipal government closed roads, shuttered airports and suspended classes in more than 2,000 schools on October 22. In the same week, Beijing’s city government issued emergency response measures, banning 80 percent of buses and 30 percent of government vehicles from city roads and restricting private car use based on license plate number.

But what does this mean for foreign businesses operating in China? First, high-emission industries will increasingly come under pressure to comply with Beijing’s Clean Air Action Plan and the National Clean Air Action Plan, issued in September of this year. As part of the national plan, China’s State Council has called for a massive reduction in coal use and the shuttering of “outdated production capacity” in heavy industry sectors like iron, steel, and cement.

Second, good talent will be increasingly difficult to recruit and retain. For foreign companies operating in China, pollution is often cited by expatriate workers as an underlying reason for leaving the country. In addition, more and more qualified Chinese managers are leaving China to relocate overseas. Although there has not yet been a significant exodus of talent, continued pollution problems will likely exacerbate human resource constraints that are cited by many US companies as a top operational challenge.

But some US companies may stand to gain from China’s growing environmental problems. Beijing’s plan dedicates ¥$1.7 trillion ($278 billion) over five years to pollution control. In addition, the Ministry of Finance announced in mid-October that it will set aside an additional ¥5 billion ($822 million) for Beijing and neighboring areas to tackle air pollution. US companies that specialize in clean technologies and pollution control systems are already eyeing sales opportunities.

However, one considerable hurdle will be competition from domestic companies. According to China’s Economic Observer, unusually heavy air pollution in September and October has already sent stocks soaring for Chinese firms such as Sanju Environmental Protection and Weifu High-Technology Group. But so far, no Chinese firm has come up with an idea like Dutch artist Daan Roosegaarde. His design for an electromagnetic “smog vacuum” recently got the blessing of Beijing’s mayor, who has agreed to test the project in one of the city’s public parks.

[author] Joseph Luk ([email protected]) is assistant editor of the China Business Review. [/author]

(Photo by Andy Enero via Flickr)

Posted by Christina Nelson